Understanding IRS Termination of Installment Agreements Due to Compliance

Entering into an Installment Agreement (IA) with the IRS can be a huge relief if you’re dealing with tax debt. However, maintaining the agreement requires strict adherence to certain compliance terms. If you fail to meet these requirements, the IRS has the authority to terminate your IA, which can lead to serious consequences.

Key Compliance Requirements

When you agree to an IA, you commit to several important conditions:

  • Regular Monthly Payments: You must make your agreed-upon monthly payments on time. Missing even one payment can put your agreement at risk.
  • Filing Tax Returns: All future tax returns must be filed on time. Failure to file can lead to immediate termination.
  • Paying New Tax Liabilities: Any new taxes owed must be paid in full by their due dates. Accumulating new unpaid tax debt can jeopardize your existing IA.
  • Responding to IRS Requests: If the IRS requests additional information or updates on your financial situation, you must respond promptly and accurately.

Consequences of Non-Compliance

If you fail to comply with these terms, the IRS can terminate your Installment Agreement. Here’s what can happen if your IA is terminated:

  • Reinstatement Fees: If you want to reinstate your IA after termination, you may face additional fees, adding to your financial burden.
  • Aggressive Collection Actions: Without an active IA, the IRS can resume or initiate more aggressive collection actions, such as wage garnishments, bank levies, and filing tax liens.
  • Accrued Penalties and Interest: Interest and penalties continue to accrue on your unpaid tax balance, increasing your overall debt.
  • Impact on Future Agreements: Defaulting on an IA can make negotiating future agreements with the IRS harder. They may impose stricter terms or require more rigorous financial disclosures.

Staying Compliant

To avoid the risk of termination:

  • Make all payments on time.
  • File all tax returns by their due dates.
  • Pay any new tax liabilities promptly.
  • Respond to IRS requests for information quickly.

Understanding and adhering to these compliance requirements is crucial to maintaining your Installment Agreement and avoiding further complications with the IRS.